Can the 83(b) election be filed late?
October 31, 2005
Date: Wed, 31 Aug 2005
An officer of a closely-held corporation is granted an option to purchase 1,500 shares (50% of the outstanding stock) in the corporation, which has a history of losses at 1¢ per share. He fails to file the Section 83(b) election and report the income.
Can the 83(b) election be filed late, together with an amended income tax return for 2003? Does the Section 83(b) election even apply when the option relates to 50% of a company’s stock?
Thank you for your help if you have time.
Date: Wed, 12 Oct 2005
First, if the shares were vested when the option was exercised, no election is required. The transaction is taxable on the date of exercise of the option, assuming the option was a non- qualified stock option. Section 83 applies any time property is paid in exchange for services. The Section 83(b) election can be made when the property received was nontransferable and subject to a substantial risk of forfeiture.
Once the time period has passed to make a timely election (30 days after receiving the property/exercising an NQO), the opportunity is lost. No late election is allowed.
If the election isn’t made, ordinary income is reported for the excess of the fair market value of the stock over the option price when the stock becomes vested.